Safe Bulkers, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the SAFE Bulkers Conference Call to discuss the first quarter 2020 financial results. Today we have with us from SAFE Bulkers Chairman and Chief Executive Officer, Mr. Polys Hajioannou, President, Dr. Loukas Barmparis, Chief Financial Officer, Mr. Konstantinos Adamopoulos, and Chief Operator Officer, Mr. Ioannis Foteinos. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question and answer session, at which time, if you wish to ask a question, you will need to press star 1 on your telephone keypad and wait for your name to be announced. Following this conference call, if you need any further information on the conference call or on the presentation, please contact Capital Link at 212-661-7566. I must advise you that this conference is being recorded today. Before we begin, please note that this presentation contains forward-looking statements as defined in Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended concerning future events. The company's growth strategy and measures to implement such strategy, including expected vessel acquisitions and entering into further time charters. Words such as expects, intends, plans, believes, anticipates, hopes, estimates, and variations of such words and similar expressions are intended to identify forward-looking statements, although the company believes that the expectations reflected in such forward-looking statements are reasonable. No assurance can be given that such expectations will prove to have been correct. These statements involve known and unknown risk and are based upon a number of assumptions and estimates which are inherently subject to significant uncertainties and contingencies, many of which are beyond the control of the company. Actual results may differ materially from those expressed are implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, changes in the demand for dry bulk vessels, competitive factors in the market in which the company operates, risk associated with operations outside the United States, and other factors listed from time to time in the company's filings. with the Securities and Exchange Commission. The company expressly disclaims any obligations or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the company's expectations. We respect thereto or any change in events, conditions, or circumstances on which any statement is based. and now I pass the floor to Konstantinos Adamopoulos. Please go ahead, sir.

Good morning to all. I am Konstantinos Adamopoulos, CFO of SafeBulkers. Welcome to our conference call and welcome to discuss the financial results for the first quarter of 2020. I would like to start by thanking our seafarers for their commitment and dedication throughout this harsh period. As collectively, we continue to serve our charters. Moving to slide 4, we have been active in all fronts, operational, financial and commercial, taking measures to ease the impact of COVID-19. In the operational forefront and in relation to our seafarers on board, the company's COVID-19 management plan has been disseminated to the vessels, incorporating measures to protect seafarers and ensure employees' health and well-being and to keep all our vessels sailing, continuously servicing our charterers. In our shore operations, we have conducted remote real business efficiently through since March 20, 2020 and reopened our offices on May 4, 2020. So far, we had zero COVID-19 incidents both on board and ashore. We have secured the normal supply of bunkers, provisions and potable water at main ports under specific procedures to avoid contact with port personnel. All critical technical services are maintained and as all crew changes have been suspended, we have developed a detailed plan of such changes in order to increase crew availability and meet replacement demand once the changes resume. who have been also active in our environmental investments as seen in slide 5. From the beginning of the year and until May 29, 2020, even during the peak of the COVID-19 pandemic, our program of dry docking, balanced water treatment systems and scrubber installations has continued. We have concluded 6 dry dockings, 5 balanced water installations, Four Scrapper installations and had one reshaped new-built vessel delivered. In the financial forefront, in slide 6, following the refinancing concluded early 2020, which provided us with 53.1 million of additional liquidity and a drawdown of 10 million from our unsecured RCF, we took a further step in close cooperation with our lenders to preserve our strong financial position By pushing back to 2022 and 2023, a total of $39.1 million of loan repayments scheduled for 2020 and 2021, and also by drawing down $36.4 million from existing available facilities. Moving to slide 7, in a commercial forefront, we have reached an agreement with a prominent charterer for four period-time charters of non-scrabble fitted Panamax-class vessels. Three five-year charters at a daily cross-charter high of $11,750 for the first two years, and for the next three years at Baltic Exchange, Kamsar Max Test 82.5 TC times 97%, less $2,150, starting in the third quarter of 2020. And one year charter at a daily cross-charter rate linked to the Baltic Exchange Test 82 5PC Index times 109%, starting in the first half of 2020, plus front-loading of future gas flows. The anticipated aggregate gross revenue of these four charters is 54.7 million until 2025, basis calculations of the current FFA curve. Let's move now into analyzing the market conditions. In slide 9, we present the outlook of the market as of the beginning of June in terms of charter rates for CAPES and CAPSAR-MAXIS as compared to 2019. So far, the market is mainly driven by COVID-19 and its effect in global economies. Most advanced economies have already announced stimulus packages to address the adverse effect of the pandemic. Another important driver so far is the US-China trade war and the long-anticipated implementation of Phase 1 deal which was struck back in January. Seasonality is a constant driver in the Syrian market, setting the first quarter of every year as the weakest in terms of charter dates. Turning to slide 10, we present certain representative data on China, which seems to be the first country to recover from the pandemic. Chinese economy contracted by almost 7% in Q1. In response, China has announced the fiscal measures It intends to take to stimulate the economy back to growth territory. And these include a fiscal stimulus package of almost 3.6 trillion yen, that's equivalent about half a trillion dollars, a raise in the financial government's special bond quota of 3.75 trillion yuan, an issuance of 1 trillion yuan of central government special bonds targeted as COVID-19 relief, and finally business tax cuts and fee reductions worth 500 trillion yuan in total. As evident in the bottom graph, Chinese industrial production indicators are rebounding, signaling what seems to be hopefully a V-shaped market recovery. The special purpose bonds should be the catalyst for a boost in industrial production and consequently for the uplift in demand in marine transportation commodities when the conditions in China normalize. Slide 11, we analyze the developments on imports of the major dry bulk commodities. As shown on the top graph, total iron ore imports to China in the January to April period were up 5% versus the same period of 2019. Rapid spread of COVID-19 in Brazil has halted exports of iron ore, which are down 17% year on year. This explains partially the depressed charter rates on caves. In the graph in the middle of the page, we present the thermal coal and lignite imports to China for the January through April period, which were increased by 46.6% versus the same period in 2019. And on the bottom graph, we see that soybean imports to China in the same four months with a marginal increase versus the same period of 2019. We believe that the positive news coming from China and the gradual recovery of other importing countries worldwide will eventually increase demand for bulk. In slide 12, we present the status of the order book on KXM Panamaxes to Post Panamaxes. Orderbook is declining after 2020 with slippage and cancellations due to COVID-19 creating extensive delays. The combination of aging of fleet, low charter rates and increased capex for complying with environmental regulations may intensify scrapping activity which has diminished due to lockdowns of demolition countries like India and Bangladesh. Lastly, the ongoing environmental discussions for emissions and decarbonization do not favor new orders. On slide 13, we present the effect of the global lockdowns and mobility restrictions on demand for oil and fuel. As presented on the top graph, according to BNB, the global oil demand is also expected to evolve on a V-shape. In the middle and bottom graphs, we present the US implied oil demand and the gasoline demand. We believe that as global lockdowns ease, all demand will continue to improve in the second half of 2020. In slide 14, we present the price of the spread differential, also known as HI5, between the IMO 2020 compliant fuel versus the heavy fuel oil, which is used now only on the scrubber fitted vessels, in correlation with bent prices. Compliant fuel and distilled products are closely related to the open-up and recovery of global economies. The compliant fuel prices versus the HFO prices have shrunk. As evidenced on the graph, the HI5 spread is correlated with burn prices. We expect that the end of the global lockdown will lift mobility restrictions and hence the demand for oil and fuel. would probably lead to recovery of burn prices and to a wider HI5 spread differential. Turning to slide 15, in the context of environmental social responsibility, despite the tough environment, we have retrofitted 18 scuppers and 25 ballast water treatment systems with an aggregate cost of $55.8 million. By the end of the third quarter of 2020, we will have completed our SCRUB installation program. On the bottom table, we estimate that expected downtime days 42 and 43 in 2020 show us to assist our analysts with their projections. Now let's summarize the key market takeaways in slide 16. Sonality patterns are repetitive, We believe that delays in Chinese shipyards, delays in ports due to quarantine, the diminished scrapping, and excessive environmental investments will control the supply side. As China has introduced a fiscal stimulus package of about half a trillion dollars, its industrial indicators are rebounding, signaling what might possibly be a V-shape of the market recovery. There is a declining order book from 2020 onwards. At the same time, discussions on emissions and decarbonization will not favor new orders. The combination of slippage and cancellations due to the COVID-19 pandemic may create extensive delays. Furthermore, the aging fleet, low freight rates, and increased environmental capex may enhance the scrapping activity. The global lockdown has adversely affected the demand for oil and distilled fuels. We expect a slow rebound of global oil demand in the second half of this year as global lockdowns ease oil demand. The fuel price spread differential has shrunk for this reason during the first quarter of 2020, Brent recovers, then this pet might recover as well. Time 17, the keynote points are that liquidity, which is in excess of $107 million, in the remarks that we've done, numerous dry documents for 30 to 90% of our environmental investments. Such liquidity in this unstable environment provides us with flexibilities. Our ability to produce long-term period charters despite market conditions adding front-loaded cash flows visibility is a hard evidence of excellent relations with our charters. Our ability to complete our environmental investments in the peak of the pandemic is an evidence of our technical expertise. And lastly, our smooth and detailed profile for the next years Let me continue with our liquidity in slide 19, which as of May 29, which here stood at $137.2 million, sitting at $108 million. will present on the blue columns our repayment schedule on a pro forma basis, taking into account the refinancing activities, the new loan facility for our last new build, which was delivered, and the secured revolving credit facility, versus the repayment schedule as of March 31, 2020. The size, which was... provided us with an additional liquidity of $53.1 million. During the first quarter, we drew down $10 million through our unsecured RCF. In April 2020, we drew down an additional $10 million available under this RCF. In addition, in close cooperation with our lenders, we pushed back $39.1 million of contract payments. 2022 and 2023 were originally scheduled for 2021, thus expanding the average tenure, creating a smoother repayment profile, while maintaining the same governance of our debt. This resulted in increasing our flexibility during this period. Overall, following the quarter end, the company drew down $36.4 million and pushed back $39.1 million payments in 2021. Moving to slide 21, we present our quarterly daily OPEX, which stood at $4,731. This is our quarterly daily GNA, which stood at The aggregate figure for both these numbers for 2020-2019 was $6,142, demonstrating a focus on green operations. We believe that this $6,100 for both OPEX and GNA when comparing apples to apples is one of the interface lower. If not the lowest, Even the fact that we include in our OPEX all our dry-talking expenses, and that means in our GNA, our direct accommodation, and all expenses related to the administration, while other companies may not include these numbers. Moving on to slide 22, we present our quarterly TCE, which stood at $9,089, affected by COVID-19, versus our quarterly OPEX, which stood at $4,701. Let's go to slide 23 with our quarterly financial highlights for the first quarter of 2020 compared to the same period of 2019. Net revenues decreased by 5% to $45.7 million from $48.3 million. Our time charter equivalent rate per versa decreased to $9,089 per day, going to $8,250 during the same period in 2019. Daily Vessel OPEX increased by 16%, $4,771, compared to $4,153 for the same period in 2019, whereas daily OPEX excluding dry document pre-delivery expenses decreased by 3%, to $4,285 for the first quarter of 2020, compared to $4,150 for the same period last year. Our adjusted EBITDA for the first quarter of 2020 decreased to $9.4 million, compared to $24.9 million for the same period in 2019. Our adjusted loss per share for the first quarter of 2020 was $0.13, calculated on the weighted average number of 103.4 million shares, compared to our adjusted earnings per share of $0.03, during the same period in 2019, calculated on a weighted average number of 101.6 million shares. Closing our presentation in slide 24, we present our quarterly flip data and average daily indicators compared to the same period last year. I would like to emphasize that in this period we have worked extensively despite the tough market conditions, and we have contracted three files We also drew down 36.4 million dollars. have installed 18 scrubbers with only two remaining. We have a strong balance sheet and comfortable leverage, a smooth debt profile for 2020 and 2021, and liquidity of $127.2 million. And finally, we took measures to protect our seafarers and show employees' health and well-being and kept all of our vessels sailing, continuously servicing our charters. Once again, we would like to thank all RC fairs for their commitment and dedication and efforts throughout this tough period. Going forward, we maintain our determination to preserve our strong financial position, in which we currently are, as we believe that the market signs are there for a market rebound once the COVID-19 impact is fully underway. Our basic list presents in more detail our financial and operational results. We're now open to take questions.

As a reminder, if you would like to ask a question, please press Store, then the number 1 on your telephone keypad. Again, that is store one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. And your first question comes from Chris Weatherby.

Hey, guys. Good morning. This is James. I'm for Chris. I just wanted to start with balance sheet and touching some of the refinancing. I just wanted to get a sense of Are there additional refinancing that you'd like to pursue? Are you comfortable with what you've done so far? I just kind of wanted to get a sense of what sort of the target capital structure is right now or what goals you're sort of working towards and sort of see where you are in that process.

Yes, this is Loukas. Look, we are quite happy. We have concluded very quickly this refinancing process. of certain facilities. Of course, the major job was done late last year. And right now you can see the principal payment schedule for the following years. And we feel quite comfortable because we sit on a substantial liquidity which can cover the 2020 and 2021 principal payments. Having said that, of course, we shouldn't forget that The debt-to-asset ratio is 63%, which is still quite comfortable. And so the company, we feel, the manager feels that we are very fine at this position. Got it.

And kind of wanted to get a sense of the preferreds within that context. Is there anything that you think that you could opportunistically do there, or is that actually something that you're also comfortable with?

Could you repeat the question?

Yes, I just also wanted to touch on the preferreds. Are you comfortable with them where you are? Or is, given the current environment, is there something that you could do opportunistically there, possibly repurchase at a discount, or they are fairly high cost of capital? So just to get a sense of if there's anything you could do on that side of the capital structure as well.

Yes, we are quite comfortable with preferreds, and I think... The prefects have played a very good, let's say, substantial part of the equity of the company. And I think we should continue to maintain them in our balance sheet for, let's say, next periods.

Got it. And then looking at OPEX. I know it's up about 3% year-over-year, as you said. Just wanted to get a sense of if that is the right run rate to think of moving forward, or if you have any opportunities to move it down, or if there's anything sort of one-timish in there, essentially trying to get an outlook for OPEX per day.

The OPEX that we always present It's not comparable with several other companies that report different OPEX and dry docking expenses. We put everything together. And if you consider that, we should think that we did a large number of dry dockings and installations during the first quarter, despite the fact that we had this COVID-19 outbreak. We did it with our people in China. We are quite comfortable. In the next quarter, some may expect that this figure probably will go down because we have less dry talkings. And the other thing is that also we have a program of reducing OPEX during this period. So I think that we're quite happy even in comparison with all our peers.

Got it. I think you called out that PopEx per day, excluding dry docking expenses, was roughly $4,285. So if we look at that moving forward, what should we be thinking of that particular number being, and then also your ability to reduce that through some of your initiatives, just trying to get an X dry docking?

and ex-delivery expenses?

Trying to get a sense of what that might do across the next couple quarters.

Yes, I think that we should look for a figure between 4,000 and 4,200. This is a reasonable assumption on our efforts. And on that, then you need to top up with the dry-dogging expenses, as we said.

Got it. And then if you're thinking about sort of the outlook at the moment, what is your expectation for rates? Do you think it'll be slow and gradual in the current maybe mid-next year? Do you think it'll be sort of sharp and pointed and you could actually see some level of recovery in this year? Just trying to understand sort of the outlook for the sort of shape of recovery, if you will.

Yes, this is Paul. What we expect is the second half of this year to move towards break-even levels or slightly above break-even levels. But as this uncertainty is still there with the pandemic and nobody knows how it will develop, if there is a second round coming or if there is a vaccine that may be produced, A lot will depend on that. If things get normalized, we expect that we will have a very strong 2021 because the supply of new buildings will be much less than what is this year and demand will be back on track. So we believe that we should have a good next 18 months if we don't have a new surprise from the pandemic. Got it. Okay. That's it for me.

Thank you. Thank you.

Your next question comes from Reggie Vivian.

Howdy, gentlemen. How's it going?

Yeah, fine. Thank you.

Excellent. We have a few questions for me. So looking at the kind of share with the share issuances, You know, you repurchased, I think it was like 3.3 million shares. What is the average price of that? And then are you looking to be more conservative now or still looking at share repurchases at these levels?

Look, the manager is very comfortable with the company, and that's why from time to time we have repurchase programs. And I think that in the future, according to our assessment, we may continue to do such repurchase programs, either opportunistically or to support the stock price.

Sure. And the average price for the shares that were repurchased?

Could you repeat?

The average price for the shares that have been repurchased?

We have not reported that, but it's quite close to what the levels... I mean, it's below the levels of the stock today.

I think it's around... Around what?

Sorry, you can't hear me there. Okay, so similar to the price you offered for the vessel.

But okay, can you provide some color on the recent jump in the rates for cape sizes and kind of your expectations of this kind of going forward?

Cape sizes rates are improving the last two or three weeks. We expect very soon the market to get over $15,000 a day, the spot market. Thereafter, a lot depends on how also the trend of the pandemic will develop in Brazil. If there's no big surprises there, and we can maintain the safety of the workers in the mines. We don't get any big surprises from that place. We think that there will be an increased volume of Brazilian iron ore moving to China. We see that the demand is there. You see that the price is going up. Iron ore is more than $100 a ton. We expect the volume of Brazilian iron ore to help the market substantially. I think the market is already improving. So basically the usual pickup in demand that was in the past starting after the Chinese, you hear, usually in April, this year because of the pandemic in the Western Hemisphere is delayed and we see it now in June. So it's a two-month delay from other years. I expect to see a very strong July to December period for the iron ore trade.

Sure.

Okay, and then I guess the last question with all that in consideration, now that we're in almost mid-June, can you give some guidance on the second quarter compared to the first quarter in terms of that daily TCE? I know for the first quarter you're at 9,100. Where do you kind of

Your next question comes from Richard Diamond.

First, great job in a difficult environment. When the market's hot, it's easy to look good, but this is a true demonstration of character. My impression is that mining involves, by its very nature, Social distancing. I mean, people are wearing masks and they're far apart. So, you know, it looks like the mines should be able to reopen in Brazil. But I wondered if you could just give us some commentary what you see happening on the ground in Brazil. Thank you.

When you mean on the ground, you mean in the various sports around the world?

No, on the ground in Brazil, what's happening today? You know, what is your observation condition today?

We saw the reports over the weekend that there was some closure of mines in Brazil because of some increased, you know, COVID-19... and some workers there. But I don't think this will last very long. Already Vale gave reassurances that their production will not be affected. Maybe there will be a little bit of shortage of pellets for the local market. So as far as exports are concerned, I don't think we will see any great deal of change of what was planned for export. So we are reasonably optimistic, and with also the improvement of the Far Eastern market, capes will not balance in volumes towards Brazil. Some of them, they are staying busy in the Pacific, and this will give a chance to the Thank you very much.

I share your sentiment. Thank you very much. Thank you.

Gentlemen, there are no further questions. I will turn the call back over to you.

So, and this concludes our conference call for the Q1 headings. Thank you very much for your participation, and we look forward to sending you

Thank you. Bye.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.